A new EU WTO initiative will help businesses increase access to raw materials. European businesses are increasingly unable to source basic raw materials locally. Instead they depend on materials extracted and processed in developing countries. Due to the extensive use of export taxes in these countries, businesses are however finding it difficult to gather sufficient supplies to keep up production. Commodity dependent industries can now put their hope to a renewed EU initiative to increase their access to raw materials.
Unlike export quotas, export taxes are not considered illegal under WTO rules. This may be regarded as a loophole in the multilateral trading system since export taxes could act as indirect subsidies to domestic producers and consequently distort international trade. Export taxes also disturb world commodity prices. The many developing countries that use such taxes are arguing that they are legitimate, necessary to counter volatile price fluctuations and essential for the promotion of local downstream processing industries. This is the classic infant industry argument. Indeed, export taxes are also an important and reliable source of revenue for these countries.
The EU has already for some time been pushing for a WTO understanding with regard to export taxes. Very late in the day in the Doha talks, the EU has now decided to renew its efforts concerning this issue. The EU proposal seeks to eliminate all taxes on exports by the WTO members while allowing some of the poorest countries to keep their export taxes subject to the scheduling of ceilings. This is an unexpected and daring move from the European side since a proposal on export taxes is deemed to upset the final WTO negotiations. Proponents of export taxes already argue that the topic is not covered by the mandate that the WTO members have for the negotiations.
The new EU proposal is to be presented in the WTO later this week.
For more information please contact Margareta Djordjevic in our Brussels office at firstname.lastname@example.org.
The EU, the U.S., Korea, and Taiwan have agreed to scrap all duties and charges on multi-chip integrated circuits, the new generation of semiconductors. This is good news for the world's producers of electronic devices, including mobile phones, MP3-players, personal organizers and electronic devices in cars.
Multi-chip integrated circuits (MCPs) allow several semiconductor integrated chips to be combined in one product to increase performance while using less space. The annual market for MCP components is estimated to be worth billions of dollars. Although semiconductor products already benefit from zero duties and charges under the WTO Information Technology Agreement, the new generation of multi-chip integrated circuits is not considered to be covered by this Agreement.
The new MCP agreement remedies this situation, creating stability and predictability for MCP producers and users. Although already applying zero duties on MCPs, Japan is expected to join the agreement within the near future. Other semiconductor producing countries are also invited to join. The MCP agreement entered into force on 1 April 2006.
For more information please contact Margareta Djordjevic in our Brussels office at email@example.com.
Origin rules create risks as well as opportunities. As policy makers tout the benefits of Free Trade Agreements, many companies are considering how to establish operations to maximize the benefits of each agreement. When will a product be considered as one from that FTA partner country, and thus obtain the benefit of the FTA's duty preference or elimination? To avoid undermining the agreements, strict origin rules confer benefits only on those products that originate in an FTA country.
These rules are complex, and benefits can only be obtained if care is taken. The rules in each agreement vary, not only from each other, but also from the rules that are applied by Customs in general. Advance planning is thus not only prudent, but required. Current U.S. FTAs include those with Israel, Jordan, Singapore, Chile, Morocco, and Australia, as well as NAFTA and DR-CAFTA. The U.S. has also concluded negotiations with Peru, Oman and Bahrain, but these agreements are not yet in effect. Reflecting varied commercial interests, each agreement contains different rules of origin, breaking from the traditional rule that a product must undergo a “substantial transformation” within a given country in order to originate therein. For example, pharmaceutical products are deemed to originate under most FTAs based on the occurrence of a chemical reaction or a shift to one specified tariff classification from another within a party country. Under the U.S.-Australia FTA or CAFTA-DR, however, various other occurrences can confer origin as well, such as purification or mixing and blending of pharmaceutical actives. Under NAFTA, there is a value content requirement for certain pharmaceutical products in addition to the required tariff shift, necessitating complex calculations to determine whether the article has NAFTA origin. Certain other FTAs do not address pharmaceuticals at all.
In line to be negotiated now are FTAs with Korea and Malaysia and down the road perhaps Indonesia, Taiwan, and Japan. Whatever form they ultimately take, they will affect origin rules, and companies are wise to review their trade profile. Through creative analysis of a company's trade data, it is possible to construct a profile that will provide a menu of choices under the FTAs. These choices can protect your business or give you an advantage.
To confirm eligibility under existing FTAs, and to consider whether pending agreements will benefit or hurt your business, please contact Barry Cohen at firstname.lastname@example.org or Carrie Fletcher at email@example.com in our Washington office.
Huge fines in QRS-11 sensor cases underscore importance of properly classifying exports. Anyone who doubts the importance of properly classifying products, technology and software before exporting them should read the State Department's charging letters to Goodrich Corporation/L-3 Communications (“Goodrich/L-3”) and the Boeing Company. These two enforcement cases, imposing fines of $7 million and $15 million respectively, arose from the companies' actions involving tiny State Department-controlled QRS-11 quartz rate sensors contained in standby flight instrument systems (“CSISs”) used on commercial aircraft. Besides underscoring that classification is key to export compliance, the cases show that companies will be held accountable for failing to provide relevant information in export-related submissions.
The State Department's Directorate of Defense Trade Controls (“DTC”) alleged that L-3 Communications Avionics (formerly a Goodrich subsidiary) violated the International Traffic in Arms Regulations (“ITAR”) by submitting a Commodity Jurisdiction (“CJ”) request for a product containing QRS-11 sensors that omitted material facts and making unauthorized exports of the sensors to foreign countries. In settlement, the companies agreed to pay a portion of the $7 million fine imposed, use the remainder of the fines assessed for corrective actions and appoint qualified company officials to serve as special compliance officials for three years.
Boeing was similarly charged with unauthorized exports of aircraft containing the QRS-11 sensors and CSIS spares with knowledge that they were subject to State Department jurisdiction as well as with omissions of material facts in submissions to DTC. Imposing a record-setting $15 million fine, DTC criticized Boeing for limiting its required compliance activities under three previous consent agreements to the business units involved and ordered Boeing to implement company-wide remedial measures under the new consent agreement, appoint a special compliance official from outside the company and take other corrective action.
To avoid similar enforcement action, companies should determine accurately the export jurisdiction and classification of their products, technology or software. Questions about jurisdiction should be resolved by submitting a formal CJ request to DTC; questions about the appropriate Commerce Department classification should be resolved with a Commodity Classification request to Commerce's Bureau of Industry and Security (“BIS”). Such submissions and others (for example, voluntary disclosures, license applications and requests for approval of Technical Assistance or Manufacturing License Agreements) should contain all relevant facts.
The U.S. continues to assert jurisdiction over re-exports of U.S.-made content in non-U.S. made components - U.S. controls delay Korean business project. Korea Telecom's efforts to connect the south with a North Korean city's telephone grid was delayed for five months because the equipment made in Europe with U.S. content required authorization from the U.S. Department of Commerce. The reason: the European products included some U.S.-origin components which subject their export to U.S. jurisdiction. Failure to comply could have subjected Korea Telecom to fines and perhaps even a denial of export privileges (access to U.S. technology).
Korea Telecom (KT) was set to begin installing telecommunications equipment in the Kaesong Industrial Complex in North Korea – a planned cooperative North-South industrial site. Given existing restrictions that the U.S. Government places on exports to North Korea, KT thought it could avoid the jurisdiction of U.S. export controls by purchasing European equipment from such suppliers as Ericsson, Alcatel, or Siemens. The surprise in this case, however, came when the European suppliers – who did not want to face possible penalties – informed KT that their products made outside of the U.S. included some U.S.-origin components. KT still had to obtain a U.S. license before installing the equipment.
The U.S. asserts export control jurisdiction over foreign-made commodities if the U.S. - made content makes up over 25 percent of the commodity by value. That threshold is lowered to no more than 10 percent when the destination is a designated terrorist-supporting state like North Korea. As a result, KT's project was delayed for five months until it finally received approval by the U.S. Department of Commerce.
As the globalization of supply-chains continues to increase, the need has never been greater for companies that utilize any products containing U.S.-made components – including foreign companies – to ensure compliance with the far-reaching jurisdiction of U.S. export controls. The lesson KT learned - that content cannot be determined from source - is one that warrants consideration by all companies.
For more information please contact Brian Peck in our California office at firstname.lastname@example.org.
Revised International Trademark Law Treaty Adopted. WIPO member countries have adopted the Singapore Treaty on the Law of Trademarks which updates the 1994 WIPO Trademark Law Treaty to reflect changes in technology over the past decade. The new revised treaty is designed to remove onerous application requirements, harmonize procedures and lower transaction costs for protecting trademarks across borders.
The new treaty, adopted on March 28 at a diplomatic conference in Singapore, promotes the use of technology for trademark applications in the 183 member states of WIPO. Although the treaty will not change practices in the United States for USPTO examination of trademark applications and registrations, the new agreement requires the member states to adopt uniform procedures that will make the application process in all member states as simple as possible. Key provisions of the new treaty include:
Two other important changes in the new treaty relate to the recognition of non-visible marks, and the easing of licensing procedures. The 1994 Trademark Law Treaty applied only to visible signs, while the new treaty establishes procedures for the registration of holographic and non-visible marks, including sound and olfactory trademarks where national laws permit. With regard to licensing requirements, the new treaty limits the documentation that a country can request when an owner seeks to license a trademark for third-party use.
The new treaty will enter into effect three months after at least ten countries ratify the agreement. Forty-one members have already signed on to the new treaty, including the United States; it is expected that the new treaty will come into effect more quickly than the 1994 treaty, which went into effect two years after its conclusion.
For further information on and analysis of how your business can benefit from the revised Trademark Law Treaty, please contact Brian Peck in our California office at email@example.com.
Recent Intellectual Property Rights (IPR) Enforcement-related Developments in China. In advance of the scheduled meeting of the Joint Commission on Commerce and Trade on April 11, China announced new proposed regulations designed to strengthen enforcement against IP infringement. One set of proposed regulations would facilitate the transfer of a larger number of IPR infringement investigations from administrative to criminal cases, while separate proposed regulations will make it easier for Chinese Customs to transfer its IPR infringement investigations to authorities that can institute criminal investigations.
Both proposed sets of regulations, not yet implemented, are designed to address long-standing concerns over effective IPR enforcement in China. Specifically, the U.S., EU and Japan have expressed concern that administrative penalties do not provide an effective deterrent against infringement. Currently, most infringement cases are handled under administrative procedures. For example, in 2004, only 385 IPR-related criminal cases were prosecuted, compared to 9,500 administrative cases for copyright infringement, 52,000 for trademark infringement, and 10,000 for patent infringement. The new regulations will make it easier to transfer administrative investigations to criminal cases, which can result in prison terms of three to seven years and punitive fines.
Another long-standing concern has been the lack of procedures to ensure the timely transfer of suspected criminal infringement cases from Chinese Customs to Public Security Bureaus which can initiate criminal investigations leading to punitive penalties. The second set of proposed regulations ensures the timely transfer of such cases between Customs and the Public Security Bureaus.
China has also recently released a rule that will require all computer manufacturers in China to load legitimate software into their final products to counter the rampant piracy rates for software. Other recent measures to combat piracy include the shutting down of over 14 plants in late March and early April which produced pirated CDs and DVDs; and the indication that the Chinese Government would finally comply with a request from the U.S. to provide data on its enforcement efforts to demonstrate China's compliance with its international obligations to enforce IPR under the WTO TRIPS Agreement.
Despite these apparent improvements, the U.S., EU, Japan and other trading partners continue to express concern over the ability of China's legal regime to protect IPR. Threshold amounts make it difficult to bring a criminal action, and China's commitment to effective enforcement remains uncertain. In addition, DUSTR Karan Bhatia recently testified before the U.S. Senate Finance Committee that Chinese exports of counterfeit and pirated goods continue to rise.
For more information please contact Brian Peck in our California office at firstname.lastname@example.org.
American investors conducting business in Uruguay may soon have an additional source of protection for their foreign investments. Earlier this month the White House submitted a bilateral investment treaty (BIT) with Uruguay to the Senate for ratification. Uruguay, whose largest trading partner is the United States, ratified this treaty last December, intending to enhance bilateral relations and trade and investment ties.
Once the BIT is approved by the U.S. Senate and entered into force, it is expected to produce new business opportunities and employment. U.S. foreign direct investment in Uruguay was already $533 million in 2004.
The U.S.-Uruguay BIT is the first to be negotiated on the basis of a U.S. model BIT, which draws on fundamental U.S. BIT principles, the U.S. experience with Chapter 11 of the North American Free Trade Agreement and the negotiating objectives on foreign investment for U.S. free trade agreements. Like the NAFTA, the U.S.-Uruguay BIT incorporates an investor-state arbitration system enabling private investors to challenge host governments for actions that interfere with their treaty obligations.
For more information please contact Sobia Haque in our Washington office at email@example.com.
Cuban embargo enforcement lands Sheraton in violation of Mexican Law. A Sheraton hotel in Mexico City received a letter from the U.S. Treasury Department's Office of Foreign Assets Control, or OFAC, warning of violations of U.S. law if it hosted Cuban guests in February. That the Sheraton in Mexico was subject to U.S. law, as a subsidiary of a U.S. company, was not surprising, but that was not the end of the matter.
Mexico, which has laws punishing compliance with the U.S. embargo, fined Sheraton over $100,000 for obeying OFAC. This affair serves as a reminder that the long arm of OFAC under the Cuban embargo reaches pretty much wherever it can. The hotel provided a venue for 16 Cuban officials to meet with representatives from American oil companies to discuss Cuba's energy market including possible investment in its oil industry. Upon expulsion from the hotel, the delegates moved their conference to a nearby hotel that was not American owned. As result of what Mexican authorities called discrimination, the Mexican Foreign Ministry fined the hotel for violating Mexico's Act to Protect Trade and Investment form Foreign Norms that Contravene International Law which was passed in October 1996.
The law at issue in this case has been mistakenly identified in press reports as the U.S. Helms-Burton law. That law prohibits third country company investment in Cuba if the property was once owned by U.S. interests. The law applied in the Sheraton case is actually the Cuban Asset Control Regulations (CACR), adopted under the U.S. Trading with the Enemy Act (TWEA). TWEA authorizes broad authority and permits the President to apply the U.S. embargo to U.S. persons, a term defined to include not only citizens, U.S. companies, and anyone (regardless of nationality) that is in the U.S., but also non-U.S. companies "owned or controlled" by U.S. persons. The CACR under this implementation reaches into other jurisdictions and demands compliance by non-U.S. companies, regardless of local law.
Compliance with the CACR, and all of the embargoes administered by OFAC, requires intricate planning and effort. This is particularly the case for offshore operations of U.S. companies and companies outside the U.S. with U.S. person involvement. While it may sometimes appear that OFAC is not actively pursuing enforcement in absurd cases, its long arm in this case illustrates that the law applies to U.S. persons anywhere, and to foreign subsidiaries of U.S. companies. If there were any doubts, Sheraton has learned a lesson the hard way.
April 27, 2006
June 20, 2006
Crowell & Moring LLP is a full-service law firm with more than 300 attorneys practicing in litigation, antitrust, government contracts, corporate, intellectual property and more than 40 other practice areas. More than two-thirds of the firm's attorneys regularly litigate disputes on behalf of domestic and international corporations, start-up businesses, and individuals. Crowell & Moring's extensive client work ranges from advising on one of the world's largest telecommunications mergers to representing governments and corporations on international arbitration matters. Based in Washington, DC, the firm has offices in Brussels, California and London. Visit Crowell & Moring online at www.crowell.com.
The information contained in this Bulletin is of a general nature and should not be construed as constituting legal advice. For specific legal advice on any of the issues mentioned in this Bulletin, please refer to the contact person identified as responsible for the item in question.
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